Azure Reserved Instances (RIs) are a critical component of any MSP's or CSP’s strategy in building a profitable cloud practice in Microsoft Azure. RIs are the biggest cost control lever that can be used to cut down the cost of virtual machines (compute) in Azure by up to 57%.
The single biggest obstacle to RI adoption by MSPs used to be cash flow. To get the biggest virtual machine discount and best value, the 36-month reservation is optimal. Unfortunately, coming up with three years of compute fees upfront is a huge sum to swallow for most MSPs. Even 12-month reservations require a significant upfront payment. What if the customer cancels? What if they downsize? These are all valid concerns when making such a large investment into Azure compute capacity and paying for it out of your own pocket before even starting to bill the customer for your services.
Azure Reserved Instances: Monthly Payments Announcement
Fortunately, Microsoft following AWS’ lead, has addressed this huge RI obstacle this week by introducing Azure Reserved Instances with Monthly Payments. This is a big deal because MSPs and CSPs can now take advantages of the huge savings offered by RIs without shelling out the entire three years (or one year) of subscription payments upfront. However, as with most things in Azure, there are nuances you must be aware of to be successful. Let’s look at some of these details.
No Additional Charges
First, the option to pay monthly carries no additional fees associated with it. Meaning that it’s not a method to “finance” RIs and pay some finance charge on top of actual cost of the RI. There is $0 finance charge and the monthly payment for a three-year RI is simply the total three-year cost of the RI divided by 36 months (same concept for a 12-month RI) – nice and easy. Microsoft is effectively financing Azure reservations for its customers without charging any interest.
Why would Microsoft do that? RIs are important to Microsoft for multiple reasons. They help Microsoft plan Azure capacity in its data centers around the world. Knowing that there are customers wanting to use a certain type of compute capacity in a certain location for the next 12-36 months is very valuable data in deciding how to deploy additional infrastructure and where to deploy it.
Therefore, Microsoft wants as much RI use as possible and any friction in using RIs prevents them from achieving this goal. Allowing monthly payments eliminates a huge friction point that prevents RI use and increases adoption dramatically. Also, let’s not forget that AWS has been offering monthly payment options for its compute reservations for a while now and Microsoft had no choice but to keep up.
Second, paying for RIs monthly is only a cash flow modification to the existing RI rules (see articles referenced above). Everything else stays largely the same. RIs are still a commitment to the entire term that carries cancellation penalties. Exchanges don’t have a fee associated with them.
It is interesting to note that in the Microsoft documentation about monthly payments, it says, “If canceling a reservation that's paid for monthly, Microsoft might apply a cancellation fee to the future committed payments that are canceled.” It is not clear what “might” means exactly, but previously the RI cancellation fee was 12% of the purchase price. So, it’s safe to assume that it’s likely going to be the same.
Third, you cannot change a reservation that you already purchased and paid for upfront to monthly payments. This is a common question but unfortunately it is not possible. However, once the existing reservation is up for renewal (after 12 or 36 months), its payment method can be switched from upfront to monthly.
CSPs Purchasing Reserved Instances with Monthly Payments
How do you transact RIs with monthly payments? Meaning, where do you go to buy them? This should be simple but unfortunately for CSPs it is not (as of now).
Reservations can be purchased in two places:
- Azure Portal > Reservations blade – Azure administrators can log into the Azure portal and go to "Reservation" to purchase Compute reservations here.
- Microsoft Partner Center – if you are a Direct CSP or CSP Provider, you have access to this tool and can purchase reservations for your customers directly from here.
If your Azure subscription is a pay-as-you-go (PAYG) or Direct subscription, you can use the Azure Portal to purchase a monthly payment RI. However, if your Azure subscription is a CSP one, then going to Reservations in Azure Portal as an administrator will greet you with the following message:
This may lead you to believe that going to your Partner Center will allow you to purchase monthly payment reservations. Unfortunately, that’s not the case. In Microsoft’s FAQ it says the following:
Q: Are monthly payments available for the Microsoft Cloud Solution Provider (CSP) program?
A: Yes, partners can purchase reservations for their CSP customers in the Azure portal. The ability to purchase reservations with monthly billing isn't available in the Partner center.
So, how do you purchase RIs with monthly payments for a CSP subscription? You must first log into the Azure Portal as a CSP admin user (typically an account @yourCSPPartnercompany.com address) and then the Reservations purchase options will be available.
This can be done by logging into your Partner Center first, locating the Customer account, and selecting Service Management>Microsoft Azure Management Portal.
Once in the Azure Portal open the Reservations blade and you should see something that looks like this:
Using Nerdio’s Cost Estimator to Compare Annual vs. Monthly RI Payment Options
Since the announcement about monthly payments earlier this week, we’ve been getting this question a lot: How do I use Nerdio’s Azure Cost Estimator to compare annual versus monthly Reserved Instances payment options? Fortunately, our Cost Estimator is already set up to present you with this information. Here is an example:
The Azure Costs Breakdown section of our Azure Cost Estimator shows you the average monthly cost and the upfront RI + remaining monthly cost. The “average per month” total shows the monthly payment when using RIs with monthly payments, and the “first month” and “per month for X months” shows the RI costs when using the upfront option.
At Nerdio, we are very excited to see this new payment option released by Microsoft. It will help with the adoption of Reserved Instances and help MSPs make significant money building solutions for their customers in Azure without making huge upfront financial commitments.
Sign up for Nerdio’s weekly newsletter so you’ll never miss out on the latest and most relevant Azure-related content that will help you build a successful cloud practice in Microsoft Azure.